An extraordinary deadline to place in service is approaching...how knowing compliance rules can save the day!

During 2022, the IRS extended some important compliance deadlines for properties negatively affected by the pandemic. One significant provision allowed a building that would have normally had a deadline in 2022 or 2023 to be placed in service after a carryover allocation to extend the deadline to the end of 2024. This deadline is approaching and owners/agents that are running up against this deadline must be mindful that the relief ends by the end of the year. Meeting the placed-in-service deadline after carryover allocation is a do-or-die situation and the entire LIHTC allocation may be lost if this deadline is not met. It is not an overstatment to say that this is catastrophic. General partners of limited partnerships and managing members of LLCs should have been having serious conversations with their general contractors all of 2024 to ensure that all stops are pulled to meet this deadline. Good compliance advice informed by knowledge of IRS guidance may be helpful here. How is that?

One important strategy compliance professionals may suggest is to focus on getting at least one UNIT in each building approved for occupancy. IRS Notice 88-116 says, "the placed-in-service date for a new or existing building used as residential rental property is the date on which the building is ready and available for its specifically assigned function." The Notice goes on to specify that this means "the date on which the first unit in the building is certified as being suitable for occupancy in accordance with state or local law." Note that one unit in a building being declared suitable for occupancy allows the building to be placed in service. Focusing efforts this way may allow the building to meet the placed-in-service deadline and preserve the carryover allocation. Some developers have reported success in getting the local inspecting authority to approve a unit, even if the usual approach in the area is to hold off certificates of occupancy for when an entire building is completed. Understanding compliance rules, even minor ones, can yield amazing benefits! 

See our original discussion of the COVID reliefs HERE.

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